Fed decision-day guide from QE tapering to Bernanke comments

Here’s what to look for when the Federal Open Market Committee releases its statement at 2 p.m. tomorrow after a two-day meeting in Washington. The panel will also provide its economic forecasts, including the first fed funds rate projection for 2016. Chairman Ben S. Bernanke plans to hold a news conference at 2:30 p.m. tomorrow.

-- A reduction in the pace of the Fed’s bond purchases, currently at $85 billion per month. Labor Department figures that showed job growth was slower than forecast in August didn’t derail economists’ expectations for the central bank to dial back the program by $10 billion at this week’s meeting, according to the median of 34 economists surveyed by Bloomberg on Sept. 6.

-- “If there will be tapering, it is likely to be small,” said Roberto Perli, a partner at Cornerstone Macro LP in Washington. “The tapering decision will be a very close one.”

-- A decision to dial down Treasury purchases while keeping mortgage bond purchases unchanged, according to the Sept. 6 Bloomberg survey. The Fed will probably keep its mortgage bond buying at $40 billion while cutting its Treasury purchases to $35 billion, the median estimate in the survey showed.

-- An assurance from Bernanke in his press conference that any further tapering will hinge on changes in the economy, according to Joseph Lavorgna, chief U.S. economist at Deutsche Bank Securities Inc. Bernanke will probably also emphasize that 6.5% unemployment wouldn’t be a trigger for a policy tightening, he said. The FOMC has pledged not to raise the fed funds rate as long as unemployment is 6.5% or higher and the outlook for inflation doesn’t exceed 2.5%.

‘Dovish’ Tone

-- “Even if they start tapering, the message you’re going to hear is, the outlook for short-term interest rates hasn’t changed, said Greg McBride, senior financial analyst for Bankrate.com. Bernanke’s tone will be “dovish” and “the goal is to comfort financial markets.”

-- A possible decrease in the unemployment rate threshold, according to Eric Green, global head of research for TD Securities in New York. Minneapolis Fed President Narayana Kocherlakota has been arguing for this change.

-- A downgrade to officials’ forecasts for this year’s growth rate, according to Michael Hanson, senior U.S. economist at Bank of America Corp. in New York. Policy makers in June forecast gross domestic product to expand by 2.3 percent to 2.6 percent in 2013.

-- New estimates for the appropriate level of the federal funds rate at the end of 2016, which officials may say is about 2.25 percent or “a little bit above” that, according to Michael Feroli, chief U.S. economist for JPMorgan Chase & Co.

-- “What you get in that 2016 interest rate forecast will be pretty important in guiding market expectations,” Feroli said in a Sept. 12 conference call. “If the economy continues to repair as the Fed will likely project, you’re going to have in 2016 an unemployment rate probably close to their view of the natural rate.”